A review of 2018 and preview of 2019 for landlords

As we come to the end of what has undoubtedly been another tough year for landlords, it’s important to review the changes that have taken place and look ahead to what lies in store for the private rental sector. Whilst it may sometimes seem to be nothing but doom and gloom, we know that those landlords who take the time to educate themselves on changes in the sector can succeed. Those are the landlords that will most likely find ways to adapt and continue to make their investments work. We thought we would give you a helping hand by taking a look at what happened in 2018 and offering a little preview of what we can look forward to in 2019.

Firstly, let’s review 2018…

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Homeless Reduction Act 2017

The Homelessness Reduction Act 2017 came into force on 3 April 2018. Previously councils waited until tenants were served a Section 21 and were then forcibly made homeless by eviction before assisting with rehousing. Under the new Act, councils now have to help people at risk of losing suitable accommodation as soon as they are threatened with homelessness.

This means tenants should get help upon receiving a notice from their landlord if they are struggling to find a new property, rather than being told to come back once they are evicted.

Founder of Landlord Action, Paul Shamplina comments “This act was well intended, but the reality is the councils do not have enough housing stock, so the problem is still being pushed back to the landlords, so that it gives the council extra time to try and rehouse. There still needs to be better work in Homeless prevention, but the Universal Credit has just added fuel to the fire. Councils are in crisis as to rehousing evicted tenants.”

“This is simply not working, we hear on a daily basis from Landlords that have instructed Landlord Action, that the local council is still telling their tenants to stay put in the property until eviction date, forcing landlords to issue proceedings and apply for eviction dates. This causes more distress for tenants.”

– Paul Shamplina, Founder of Landlord Action

Gas safety

The 6 April 2018 saw the implementation of the Gas Safety Regulations, providing landlords in England and Wales with greater flexibility around the renewal of gas safety records.

Many landlords were beginning this process early in order to avoid issues gaining access to properties, meaning they were often paying for the check more frequently than necessary.

Similar to the rules surrounding car MOTs, landlords are now able to carry out compulsory checks at any time in the two months leading up to the renewal date, without it impacting the existing date set for the following year. For example, if your gas safety check is due on 30 November, you can carry out the check at any time that’s convenient to you during October and November, and you’ll still have 12 months from 30 November until the next one is due.

HMO room size regulations

At the end of 2017, the Government confirmed that HMO (Houses in Multiple Occupation) mandatory licensing would be extended in England and Wales. This came into force in April 2018 and applies to homes occupied by five people or more who are not related to one another, and any HMO in which occupants have to share bathroom, washing or cooking facilities, such as those in purpose-built flats. Previously, only HMO properties with three or more storeys and shared by five or more persons from two or more households required a HMO licence, if also sharing kitchen and bathroom facilities. From 1st October the “three or more storeys” criteria in England ceased to exist meaning a number of additional landlords fell into the HMO landlord category.

Additional changes, impacting a large number of landlords also came into force in relation to room size.

There is now a national minimum bedroom size applied to all licensed HMOs:

A sleeping room for one adult must measure at least 6.51 square metres

Rooms for two adults should be no smaller than 10.22 square metres

Rooms for children up to 10 years old must have an area of 4.64 square metres

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Minimum energy efficiency standards

In April, the Government put Minimum Energy Efficiency Standards (MEES) in place. This means any property rented with a new tenancy or renewal after this date must have an Energy Performance Certificate (EPC) rating of E or above, which put pressure on landlords to improve their EPC rating. From 1 April 2020, this will apply to all tenancies, including existing tenancies, and landlords who fail to meet the criteria could face fines of up to £5000.

Banning orders

Also in April, new Banning Orders were introduced, meaning that any letting agent or landlord convicted of offences under the Government’s new law, may be banned from renting accommodation for a period of time. This could range from 12 months to life, with those landlords and letting agents who receive a banning order being recorded on a rogue database system. If a landlord ignores a banning order, they will face criminal sanctions, from six months in prison to an unlimited fine.

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Tax relief reduction

Until recently, landlords were able to offset mortgage interest payments against rental income. The tax relief is being phased out and from April 2018 mortgage interest tax relief was restricted to 50%. This will be reduced to 25% next year and, by 2020, it will be removed entirely.

This is one of the most important changes to landlords in recent years and it is important that landlords properly understand the implications if they are to avoid running into financial difficulties when completing tax returns.

Deregulation Act 2015

From 1 October 2015, there were various provisions that came in to effect for new or renewed tenancies. As of 1 October 2018, these now apply to all existing tenancies. They include:-

The requirement to have given an EPC, gas safety record and issue the latest ‘How to Rent’ checklist in order to serve a section 21 notice. (The requirement to provide the How to Rent checklist is not required for tenancies before 1 October 2015 unless they have been renewed after that date.)

Use of new section 21 notice (form 6A) and the new section 21 notice is only valid for up to six months after service

Retaliatory eviction provisions

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And now a preview of 2019

Longer tenancies

During the autumn budget 2017, it was announced that there would be a consultation on how to incentivise landlords to offer longer tenancies, with possible plans to introduce mandatory three-year tenancies. This consultation, ‘Overcoming the barriers to longer tenancies in the private rented sector,’ is now closed and we await the response. We hope that there will be some level of flexibility for landlords as mandatory three-year tenancies may drive more landlords out of the private rented sector (PRS).

Homes (Fitness for Human Habitation and Liability of Housing Standards)

A private member’s Bill on Homes (Fitness for Human Habitation and Liability of Housing Standards) has been proposed that will enable tenants rather than just local authorities to prosecute property owners (up to £30,000) for breach of contract if they fail to maintain rental homes to a good standard.

Proposals for new housing court

The government has launched a consultation which looks at reforming the routes to justice for both landlords and tenants, with the most radical option being to set up a new housing court. This could potentially speed up the eviction process which would be good news for landlords.

Landlord regulation

The buy-to-let market is largely unregulated, and so the government has announced they want landlords to join a redress scheme. They have also suggested that they would look at creating a single housing ombudsman to cover the whole sector, so lettings, sales and social housing consumers would replace the current individual sector schemes. This proposal is a good way off but a single gateway for consumers to access complaint handling is gaining traction.

Electrical safety requirements

It is already a requirement to carry out five yearly electrical checks on HMOs, but a recent Ministry of Housing, Communities & Local Government (MHCLG) working group recommended that all specified private rented properties should undertake five-yearly electrical safety checks. The government has since announced a full consultation as to how this will come into effect.

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Ban on tenant fees

During 2018, the government proposed to ban letting agents and landlords from charging high fees to tenants in respect of granting, renewing or extending a tenancy. A draft Bill has now been published with the proposed date of implementation coming some time in 2019.

Whilst most landlords do not charge additional fees to tenants there are some restrictions in ‘surcharges’ that can be charged

(e.g. you will not be able to charge the tenant the cost of you referencing them) and the Bill also proposes that security deposits will be capped at five weeks’ rent (for tenancies with an annual rent of below £50,000) and holding deposits capped at one weeks’ rent. It’s possible the ban could be brought into force in the early part of 2019 and it is highly recommended that landlords seek advice and education about this important change in the law.

Failing to prepare is preparing to fail…

Over the last few years, our industry has undergone an enormous amount of change as a result of supply and demand, market forces, government intervention and of course, the evolution of the proptech industry. Recent news-worthy events regarding high-profile agent collapses (both online and traditional), plummeting share prices, lack of supply, stagnating and reducing house prices show that confidence in the UK housing market is at a low point.

Now, landlords across the UK are facing a series of challenges in order to make their property investments work, leaving many considering whether to sell up.

However, with more people in the country renting than ever before, this industry is far from dead in the water, but rather requires landlords to take a step back, reevaluate and evolve. There are still opportunities for those willing to move with the times and look at new ways of working.

Eddie Hooker, CEO of the Hamilton Fraser Group, suggests that landlords need to firm up on their understanding and knowledge of the sector.

“I cannot stress enough the importance of all landlords gaining a better understanding of their market and their potential consumers. It is clear that successive governments, are looking to put the tenant first. These and other proposed changes will impact every landlord in the country. But I see huge opportunities for the landlord who embraces these changes. Property will always be a worthwhile investment with the added benefit of providing quality homes and opportunities for individuals and families across the country.”